What's Going On With Housing?

1.) INFLATION – One of the biggest mistakes we make when talking about inflation is pretending that everyone experiences the same thing. Of course we don’t. It’s important to remember that the inflation number you hear on TV is just an average. The government takes the changing prices of housing, food, gasoline, cars, healthcare, and a whole bunch of other things, gives each one a certain weight, and puts it all together into one number. But an average of vastly different economic realities doesn’t necessarily tell you the full story. If you drive 60 miles to work every day, gasoline matters a lot more to you than it does to someone working from home three days a week. This is why I think we need to be careful when we say things like, “Everything is so much more expensive.” Some things are…some aren’t, and gas is a good example. People talk about gasoline as though the price just keeps going higher every year. But do you remember gas at $4 per gallon during the oil spike in 2008? Think about that for a second. We were paying around $4 for gasoline almost 20 years ago. Today, wages are higher. Restaurants cost more. Hotels cost more. Houses cost a lot more. Four dollars in 2008 was worth a lot more than four dollars is worth today. Adjusted for inflation, gasoline hasn’t gone through anything close to the same long-term increase that we’ve seen in something like housing. Each of us lives differently using different commodities in different ways. Your inflation isn’t necessarily my inflation. One place where we have real inflation? Housing. What makes matters worse for buyers is that not only have house prices gone up a lot, but so have mortgage rates. A buyer today isn’t anywhere near in the same housing financial position as one who bought 5 or 10 years ago when mortgages were 3%! This is also one of the reasons so many people aren’t moving. Selling the house doesn’t just mean giving up the house. It means giving up the cheap mortgage, too. That mortgage has now become valuable. Now, take this idea one step further: What if the homeowner also owns stocks? What if higher prices at a company means higher profits for a business that he owns? What if the electric bill goes up, but she owns the utility? What if natural gas gets more expensive, but he owns the pipeline carrying it? The same inflation can hurt one person and help another.

2.) HOUSING – Speaking of expensive housing, could we be seeing a turn? As of last night, nearly 1 in 5 homes for sale in Washington, DC, are listed at a loss - the seller asking less than what they originally paid. Roughly 1 in 10 sellers in Colorado, Florida, and Hawaii are trying to do the same. It’s interesting that in these markets sellers want out badly enough to take a loss now rather than wait (chart credit parcllabs.com). It could have a large effect on the “average” inflation data if prices continue to decline, and/or broaden out across the country.

3.) OIL – West Texas Intermediate crude (WTI) is experiencing the increase I suggested we might see. Resistance is at the low end of the trend at $85.42. Oil hit $84.87 this morning and is now down to $82.07, -0.6% so far for the day. Oil is still trending bearish (downward bias), so a failure near this level would not be surprising. Could we test the top end of the trend at $92? Yes. As of right now, indicators suggest it would fail if oil nears that level.